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Accounting Study Essay

CA1-18

a) The ethical issue is the corporate reporting department is not recording the late entries and reporting incorrect numbers on purpose. b) Troy Normand is acting immorally because as a manager he is not making sure that the numbers are being recorded correctly. c) I would have done what a manager supposed to do and make sure the numbers and late entries are being recorded correctly. d) The major stakeholders are the employees.

C-A2-4
A

1) Relevance- accounting information must be capable of making a difference in a decision. Predictive value, confirmatory value, and materiality help make up relevance. 2) Faithful representation- that the numbers and descriptions match what really existed or already happened. Completeness, neutrality, free from error help make up faithful representation. 3) Understandability- decision makers vary widely in the types of decisions they make, how they make decisions, the information they already possess or can obtain from other sources, and their ability to process the information. The quality of information that lets reasonably informed users see its significance. 4) Comparability- Information that is measured and reported in a similar manner for different companies is considered comparable. Enables users to identify the real similarities and differences in economic events between companies. 5) Consistency- is presented when a company applies the same accounting treatment to similar events, from period to period. Through such application, the company shows consistent use of accounting standards.

B

1) If I want to buy shares in Pepsi Co I will sacrifice faithful representation for a gain from relevance. I can check the predictive value, confirmatory value, and materiality of the company for the future value. 2) If I am choosing between two companies General Motors and Toyota I sacrifice relevance and chose consistency to see which company shows consistent use of accounting standards from period to period, to help me make my decision. 3) I am looking to invest in either Toyota or General Motors I sacrifice consistency and gain from using comparability. I can see the differences in the similar companies in a similar manner. 4) If I own shares in General Electric and I see that General Electric issues a three month report that shows interim earnings have declined significantly. I will sacrifice relevance and gain from understandability because of the information and sell my shares. C

c) The Decision Usefulness criterion should be used to evaluate trade-offs between information characteristics.

CA2-5

a) Realized or realizable, earned. A company realizes revenue when it exchanges products, merchandise, or other assets for cash or claims to cash. Revenue is realizable when the assets received or held are readily convertible into cash or claims to cash. A company delays recognition of revenues until earned. Revenues are considered earned when the company substantially accomplishes what it must do to entitle to the benefits represented by the revenues. B

1) Revenue is realized because it exchanges products for a claim to cash. 2) Revenue is realizable because of the claims to cash and the publication of the magazine every month. 3) Revenue is earned because the company accomplished what it must do to be entitled to the benefits.


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